What Liberals Don’t Understand About Business and Profit

How’s this for a nicely polished gem of irony? Liberal blogger Matthew Yglesias today authored a piece poking fun at Barnes & Noble for attempting to diversify its bookstore model by venturing into the world of digital with its “Nook” e-reader. (Stay tuned for the irony, below.) For Yglesias, the notion that a corporation wants to innovate and change in order to survive is a laughable one:

Barnes & Noble the organism doesn’t want to die, so it makes a desperate effort to launch a new book-related businesses (sic) —the design and manufucter (sic) of e-readers—that it has no particular expertise in. All very understandable, but weirdly out of step with the ostensible idea of the for-profit business corporation. At the end of the day, there’s absolutely nothing wrong with investors capitalizing a new business venture, the venture making money for a while, then its profits declining and eventually the business shuts down.

Nothing lasts forever, and a corporation doesn’t need to achieve immortality to have been a good business. But large firms essentially never behave like this. They never, that is, serenly (sic) accept the inevitable and just attempt to manage their existing operations as well as possible. Instead they want to live! They want to thrive! And this survival instinct is tied up in a weird way with the doctrine of shareholder value.

Where’s the irony? Yglesias writes for Slate.com, an online news magazine acquired by The Washington Post, presumably to diversify from its “paper-only” model and expand its presence in the digital world. In other words, Yglesias is getting a paycheck from a company doing exactly what he’s lampooning Barnes & Noble for trying to accomplish.

Guess what? It’s great that companies grow, change, and diversify in order to order to produce what consumers want! It’s called answering the call of supply and demand, and those that do it best are the ones that survive, thrive, and keep producing goods while also making a profit.

What happens when companies like Barnes & Noble don’t adapt? They go out of business. Borders, anyone? The book-selling behemoth was late to the digital game, and now its stores are shuttered. How about Blockbuster? They failed to compete with the Netflix threat, so they, too, went bankrupt.

Then there’s the newspaper model, which today is clearly threatened — if not on the road to extinction. Circulation is dropping, readers are getting news for free online, and Craigslist is sapping classified revenue. The Washington Post — parent company to Yglesias’ employer — sees the writing on the wall and is attempting to find out what works in the online space. If the Post were to follow Yglesias’ advice, it would keep printing and delivering newspapers to fewer and fewer readers, throw its hands in the air, and throw in the towel. “Hey, it was our time to go!” the paper would conclude. But it doesn’t have to be.

What liberals don’t understand is that profit is a phenomenal motivator for companies and their shareholders. Corporations don’t exist just for the heck of it, they exist to make money. And they do it by providing products and services that people want. If consumers’ demand changes, profitable companies will change, too. And shareholders, workers, and the economy are better for it.

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very well explained, but then there are still those of us dinosaurs that actually prefer to read an actual book, not on an e-reader or online..same with my newspaper, magazines, etc……but yes, businesses need to diversify and change to stay in business

Uh….Mr Yglesias, Ever hear of General Electric? You know, the power generating company that began making light bulbs, then appliances, then submarines, then aircraft jet engines, then became a loan company, and is now a computer data handling company?

He also fails to recognize that companies actually provide jobs that pay people. This in turn puts money into the economy so other people that have jobs providing goods and services that they want and need make a living also.

The issue is that, to a liberal, companies exist solely to provide good paying jobs for workers-preferably union workers. If they do make a profit, they feel the government should get most of it to provide social service. They do not understand that a business uses profits to grow the business, which can provide more jobs if the business owner is able to keep some of the profit without it being taxed away. If that happens, there is no reason to expand the business!

Mr. Brownfield, I think you over-generalize. Many, if not most, liberals understand the need for a corporate entity to make a profit. The various cooperative groceries nationwide, and perhaps a very well-known co-op, REI, are examples of businesses started by liberals that have flourished.

That they don't call their profits "profits" doesn't change the fact that these businesses organize, innovate, and evolve to thrive.

I read Yglesias's post and I'm not sure I understand his point. He seems to be saying businesses act like people, but a business can't *do* anything — instead a business is *run by* people who have obligations to their shareholders. But if people were to respond to the "inevitable" the way he thinks a business should, perhaps we'd all roll over and die the minute we caught cold.

well said! liberals simply don't understand (maybe don't WANT to understand) basic business principals. back in '09 at Obama's first "job summit", he marked that businesses needed (I'm paraphrasing) forsake profits and simply hire people… well, Mr. Prez, how do you hire people without profits. when I wrote the WH explaining my particular's business needs, they finally responded 5 months later with a list of various agencies who could loan me money… businesses don't want a loan, we don't want more debt, we want our customers to simply have money in THEIR pockets, not Uncle Sam's hands in their pockets… here's the letter… http://parpools.typepad.com/ronblog/2010/06/lacki…

I guess since we are talking about innovation with an e-reader that Yglesias might look at the awesome benefits that Barnes and Noble are brining or expanding to the marketplace. What is not just a liberal concern of caring for the environment, is something that Nook addresses and B&N sees as important for their customer base who over the years have purchased, passed on and/ or thrown away plenty of traditional hard bound or paperback books. So no only is B&N doing something to survive in the marketplace, but they are also providing a product that people want and eliminates the waste of so many of our natural resources (trees). What an awful, greedy corporation. ;-) I hope that more businesses change and adapt to provide the goods and services that people actually need and want to make our lives better. Here's to innovation, taking risks and making money.

I wonder if this guy has MP3 player? Or maybe he still has a cd player? Or maybe he still uses one of those old fashioned land lines for his phone? I bet not!! My daughter works for Barnes and Noble and she has a NOOK!! You can use them for more then just reading if you have the tablet, she can also get on line with it. She still reads books, she likes having a book in her hands too, but when traveling it is sure nice to have the tablet!

Another thing that liberals don't take into account is that most business owners want to leave thriving companies behind for their children and grandchildren to run. I'm afraid that this young man is another product of the liberal controlled public school system.

I'm with you until the end, where you assume they would allow an obsolete business to expire gracefully, with a cash flow-maximizing wind-down strategy. In fact, if the obsolete business provided high pay to low skilled, low-productivity workers (such as journalists) the next phases would be government preferences, grants, tariffs and market protections, stifling of innovation by others, monopolies, coercion of competitors, government takeovers and nationalization. If all those failed, then worker "retraining", preferences, punishment of successful innovators, etc.

Imagine if Apple sticks to its core business (personal computer) and didn't venture into digital music distribution (iPods and iTunes Store) or smart phone (iPhone), it's probably an also-ran in the personal computer sector by now.

Imagine if Google sticks to its core business (search engine) and didn't venture into mobile computing (Android operating system).

This is way over-generalized and over-simplified. A good article, to be sure, but to say that liberals can't understand basic economic principles like "supply and demand" is a little much. Just because this Matthew Yglesias character struggles with them doesn't mean that all liberals are morons. C'mon, people.

Diversification is nothing new. American Express started as a package delivery service. Then they did money orders and travelers checks, then credit cards. Now they have a host of other financial and business services. Small businesses everywhere use their services. Ditto for many other old and well-known companies. Then again, this Matthew Yglesias character probably doesn't know much history.

Unprofitable, archaic and inefficient businesses do go away…as they should. Archaic and inefficient governments just get bigger and suck the life out of its subjects. Strange how this liberal wants the former to shrivel up but the latter to expand.

As pointed out above by the author, "…profit is a phenomenal motivator for companies and their shareholders."

What needs to also be mentioned is that fear is just as powerful a motivator to behavior. The system of fear and greed, the yin and yang of capitalism, breaks down when the government steps in and shifts the risk (but not the reward) from the investors to the taxpayers. Can you say SOLYNDRA? GENERAL MOTORS? FANNIE MAE?

Not to be a stickler or anything, but this has nothing to do with the liberals I know and the problems they have with the business cycle. I don't think many liberals have a problem with what was said here (I also used to be one and never thought this way).

This isn’t a “liberal” issue, it’s a “speaking without thinking” issue. I’m a “liberal,” “progressive,” (oh hell, why not throw in “socialist” for good measure), but I’m also a successful entrepreneur who owns several businesses (yeah, I’m “diversified” as well). As much as it annoys me to see the author make such an obvious misjudgement, it annoys me even more when others see his mistake as an opportunity to paint their philosophical adversaries as stupid.

Please stop putting out a premise that "liberals don't understand business, profits, free ,markets,etc" They do and they see them all as their enemies. They see our founding documents as the enemies of their agenda of rule by political class. They have much in common with the socialists, marxists and communists and that is why there are no separate parties representing those groups in the US. They all have found their homes in both parties, more in the Democratic party than the Republican party.

I thought the comment about losing shareholder value in Yglesias' original post was particularly cavalier. All that capital going down the tubes didn't seem to bother him. I wonder if he would feel that way if his retirement plans included any stock investments in companies going out of business.

I guess it's not OK for a company to look for alternative ways to stay is business but it's perfectly OK for a government agency to look for new ways to stay operational long after their original goals have been obtained. Do we really need a Department of Agriculture to pay farmers NOT to grow food?

The process of evolution is not confined only to biology. It can be seen in many other aspects of the natural world, such as business. The components are the same: innovation, competition (determination of fitness), and the growth (reproduction) of the survivors.

Would that government entities had to serve a market incentive and innovate or perish. Government continues and thrives despite its uselessness because unlike a business, it has the power of coercion and force. As Reagan said and I paraphrase, a government agency or bureau is as close to eternal life as anything we will see on earth.

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